Upmarket U.K. Loyalty Card Attracts Downmarket Customers

Free Coffee Brings Instant Gratification to Generation Now

Store loyalty cards aren't meant to be about instant gratification. They are about proving your devotion to a store by spending hundreds of dollars in the hope that, a few months down the line, you might collect enough points to earn a free toothbrush.

This received wisdom has been the central tenet of most loyalty schemes for decades, but Waitrose, the U.K. supermarket arm of the John Lewis Partnership, is bucking the trend by offering myWaitrose cardholders a free daily coffee instead of points.

The free coffee has proved so popular that, according to some reports (which Waitrose is flagging but could not verify), it is now the second biggest coffee provider in the U.K. after McDonald's. In the first half of 2013, half of all Waitrose sales were made with a myWaitrose card. The department store has 3.5 million cardholders.

Zoe Lazarus, partner, global insights at Lowe & Partners, said, "Waitrose is ahead of the curve; they have tapped into 'generation now'. People are tired of waiting and they are looking for everyday treats and rewards. Loyalty points are all about collecting CRM data and [customers] don't get much back. Look at BA Air Miles -- who's got the time to be on hold to BA for 45 minutes, only to be told there are no spaces on the flights you want?"

The posh people's supermarket, as Waitrose is known, has clearly hit a chord with its customers, but the popularity of the scheme has created its own problems. In the busy Oxford Street branch of Waitrose, you now have to show proof-of-purchase before you can claim a free drink, indicating that the coffee stampede has left Waitrose fighting to maintain its brand values in the face of a dramatically-increased customer base.

New shoppers, attracted by the free coffee, have not been altogether welcomed by Waitrose regulars. A social media backlash has highlighted the class divisions that attend the choice of supermarket in British society. Penny Clayden, whose friends describe her as "upper class," wrote on Waitrose's Facebook page, "Please don't turn into a soup kitchen handing out free drinks… seeing people walking around the store holding on to takeaway cups of tea and coffee looks quite ridiculous and it brings down the image of Waitrose."

Not everyone is such a snob, however. Michelle Whelan, managing partner at Arc London, the brand activation arm of Leo Burnett, said, "It's a myth that Waitrose is just middle class -- you can shop value there -- and myWaitrose is bringing in new, younger shoppers. If people turn up for the free coffee they will become customers. It's difficult not to buy something, even if it's just an impulse spend."

Keeping up the interest in myWaitrose and retaining newly recruited customers could present challenges once the novelty of the free coffee has worn off, however. There are other benefits to the loyalty scheme, but – apart from the free newspaper with every £5 ($8) spent – they are not all as immediate or clear-cut.

A recent flyer for myWaitrose promises "extra savings off everyday items," and, in the run-up to Christmas, there was a "four festive shops" promotion, where if you spent £50 ($82) four times in a specified period, you earned a £25 ($41) voucher to spend in January. There is also a monthly prize draw to win back the value of your groceries and other "exclusive member-only prizes and experiences."

Credit: Matthew Heath, Lida chairman and chief strategy officer

Matthew Heath, chairman and chief strategy officer at Lida, part of the M&C Saatchi Group, can see challenges ahead for Waitrose. He said, "Any scheme that is not points-based needs to be clear about the benefits. The 'four shops' is a complicated mechanic, and with the 10% off it's not clear which goods are reduced and why. Is there a hero benefit? I admire what they're doing and there's no doubt they are in tune with their audience, but I think they've got a long way to go to make it work for them."

Waitrose has a 4.5% share of the U.K. supermarket business and reported like-for-like sales up 7.6% in the 12 weeks to October 2013, according to Kantar Worldpanel. Sales at rival Sainsbury's, which has a 17% share, were up 3.7% in the same period, while Tesco's growth was below 3%. On Monday, Dec. 23, Waitrose sales reached $84 million -- the highest sales ever recorded in a single day. Customer visits were up 10.4% in December, which Waitrose attributed to the success of the myWaitrose card.